What is the difference between W-2 and 1099?

A W-2 employee has taxes withheld by their employer, who also covers half of payroll taxes (Social Security and Medicare). A 1099 independent contractor receives gross pay with no withholding and is responsible for the full self-employment tax — currently 15.3% — on top of federal and state income taxes. The trade-off: 1099 status comes with access to more deductions and greater flexibility.

How much more should I ask for as a 1099 vs W-2?

A good rule of thumb is to add 25–30% to your equivalent W-2 salary to account for self-employment taxes, benefits you'll need to self-fund (health insurance, retirement), and the unpredictability of contract work.

What are the benefits of 1099 vs W-2?

As a 1099 contractor, you can deduct a wide range of business expenses, contribute to a Solo 401(k) or SEP IRA with higher limits than a typical 401(k), deduct 100% of health insurance premiums, and potentially claim the 20% Qualified Business Income (QBI) deduction. The catch: you handle your own taxes, including quarterly estimated payments.

Is an S-Corp worth it for a 1099 contractor?

For most solopreneurs earning above approximately $80,000 per year in net self-employment income, an S-Corp election can generate meaningful tax savings by reducing the amount of income subject to self-employment tax. Below that threshold, the administrative costs of running an S-Corp often outweigh the savings.

What is 1099 income vs W-2 income?

W-2 income is employment income reported by an employer, with taxes withheld at source. 1099 income is business or contractor income reported directly by the payer — no withholding, full self-employment tax liability. Both are subject to federal and state income tax, but the SE tax treatment is fundamentally different.

Does Lettuce help me set up an S-Corp?

Yes. Beyond running your numbers, Lettuce provides guidance on S-Corp structure, reasonable salary determination, and ongoing payroll and tax management.

LETTUCE: FREE TOOL

W-2 vs 1099 vs S Corp Calculator

Same contract. Three very different paychecks. Enter your numbers to see exactly what you'd take home under each structure.

The W-2 offer

Salary

$/yr

Filing status

Health plan employer-paid

$/mo

401(k) match

% of salary

The 1099 offer

Contract amount

$/yr

As a sole proprietor we assume you buy your own health plan at the same monthly cost as the W-2 plan. In the S Corp column, coverage comes through the Lettuce health plan at $500/month.

Through an S Corp, a contract of — already matches everything your — W-2 was worth.

Without the S Corp you'd need — to break even — the structure alone is worth —.

W-2 employee The ceiling

—

take-home + match. Raises arrive on someone else's schedule.

Gross salary—

FICA tax—

Federal income tax—

401(k) match—

Health plancovered

Your position—

1099 contractor The leap

—

your rate, your hours — this is the starting point.

Contract revenue—

Self-employment tax—

Federal income tax—

Health plan (own)—

QBI deduction—

Your position—

The freelancer's move

1099 via S Corp

—

same freedom, same contract — more of it stays yours.

Contract revenue—

Payroll tax (salary only)—

Federal income tax—

Lettuce health plan—

Running costs—

Your position—

No Ceiling

A salary caps your year. A rate compounds: raise it, add a client, and the whole increase lands in your column.

Work when you want

Six weeks off, a four-day week, school pickup every day. You design the calendar and price it in.

Built to Grow

Start as a contractor, elect S Corp as income grows, and keep more at every step. The structure scales with you.

As a W-2 employee,

your employer handles half of your payroll taxes. Straightforward, but you're also leaving deductions and retirement strategies on the table.

As a 1099 independent contractor,

you gain flexibility and access to powerful deductions — but you're now on the hook for the full 15.3% self-employment tax on your net income. That shock to the system surprises a lot of solopreneurs in year one.

As a 1099 filing through an S-Corp,

the picture changes. By splitting your income between a reasonable salary and shareholder distributions, you only pay payroll tax on the salary portion. The result? The same work, a structurally lower tax bill.

FAQs

What is the difference between W-2 and 1099?

A W-2 employee has taxes withheld by their employer, who also covers half of payroll taxes (Social Security and Medicare). A 1099 independent contractor receives gross pay with no withholding and is responsible for the full self-employment tax — currently 15.3% — on top of federal and state income taxes. The trade-off: 1099 status comes with access to more deductions and greater flexibility.
How much more should I ask for as a 1099 vs W-2?
What are the benefits of 1099 vs W-2?
Is an S-Corp worth it for a 1099 contractor?
What is 1099 income vs W-2 income?
Does Lettuce help me set up an S-Corp?

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W-2 vs 1099 vs S Corp Calculator

1099 via S Corp

No Ceiling

Work when you want

Built to Grow

Why the Math Matters More Than the Label

As a W-2 employee,

As a 1099 independent contractor,

As a 1099 filing through an S-Corp,

FAQs

What is the difference between W-2 and 1099?

How much more should I ask for as a 1099 vs W-2?

What are the benefits of 1099 vs W-2?

Is an S-Corp worth it for a 1099 contractor?

What is 1099 income vs W-2 income?

Does Lettuce help me set up an S-Corp?